IS, MWeb merger on the cards?

Five years after media giant Naspers put MWeb up for auction unsuccessfully, corporate action involving the Internet service provider may again be looming.

According to a well-placed industry source, Dimension Data and Naspers have been engaged in talks about merging MWeb and Dimension Data division Internet Solutions (IS). Although details are sketchy, talk is that Dimension Data will hold 80% of the equity in the merged entity, with Naspers holding the remaining 20%.

There have been industry murmurings since November that Dimension Data and Naspers have been in talks about a potential deal. This centred at first on a possible acquisition by Dimension Data/IS of MWeb, though both parties denied this.

Dimension Data Middle East and Africa CEO Derek Wilcocks told TechCentral last month, when the speculation first emerged, that his company was not in talks to acquire MWeb.

“There is no basis for that,” he told TechCentral. “It is untrue that we are in talks to buy MWeb.”

However, he declined to comment further on whether the two parties were engaged in discussions and, if so, the nature of that dialogue.

IS MD Saki Missaikos said the Internet service provider had no interest in providing services directly to retail consumers, the area that makes up the bulk of MWeb’s business. MWeb group CEO Francois Theron dismissed the speculation about a deal.

On Wednesday, Dimension Data said it has a long-standing policy of not commenting on “market rumour” or “speculation” involving either the group or any of its affiliates or subsidiaries.

But Dimension Data, led by IS, has shown it has an appetite for corporate deal making after snapping up East Africa’s AccessKenya Group earlier this year in a deal valued at R328m.

AccessKenya operates 430km of metropolitan fibre, connecting about 560 buildings in the main urban centres of Nairobi and Mombasa. It has a customer base of 6 000 corporate leased lines.

Earlier this year, Dimension Data, which is owned by Japan’s Nippon Telegraph and Telephone, was also linked — as were Vodacom and MTN — to a potential offer to buy Neotel. Vodacom has since entered into exclusive negotiations with Neotel about a sale.

In 2008, Naspers tried to sell MWeb through an auction process, but was ultimately unsuccessful, even though the media group said it had received numerous offers for the business. It’s understood it had subsequent discussions with MTN, which didn’t lead to a deal.

Brian Neilson, research director and head of telecoms consulting at BMI-TechKnowledge, said it’s possible that Naspers has decided that it no longer sees an opportunity to offer broadband-based triple-play services in South Africa through MWeb. IS, on the other hand, may be looking to video content and triple-play offerings as a way of expanding its business in the years ahead, he said.

A merger, if it’s happening, is unlikely to be driven by a desire by IS to enter the consumer connectivity market, which Neilson said no longer offers good margins to Internet service providers.

A number of companies are believed to be considering serious moves in the consumer Internet protocol television and video-on-demand (VOD) markets, including Telkom and Altech. Although the company is not saying much, Altech is understood to be building a set-top box with the aim of offering South African consumers some sort of VOD-based service.

MWeb, founded in 1997, is one of the country’s largest consumer-focused Internet service providers. It has 320 000 retail consumers as customers and its MWeb Business arm, which is focused largely on the small and medium enterprise market, has over 11 000 clients.

It consists of three divisions — MWeb ISP headed by Derek Hershaw, Wi-Fi headed by Nathier Kasu and Optinet headed by Andre Retief. The MWeb group is led by Francois Theron, who took the reins following the resignation in 2012 of Rudi Jansen.

According to MWeb’s website, it operates a 10Gbit/s national network and has access to more than 23Gbit/s in international capacity. The company pioneered the introduction of uncapped fixed-line broadband in South African under Jansen’s leadership. — (c) 2013 NewsCentral Media